The world of professional sports was rocked late last week by the biggest betting scandal in recent memory. It happened just as pro leagues and sportsbooks signaled their embrace of the booming prediction market industry, raising questions as to whether the pairing could soon lead to predictable consequences.
On Thursday, an FBI operation culminated in the the arrest of an NBA player and a coach for alleged involvement in multiple gambling schemes, including one involving the manipulation of game outcomes to influence sports bets.
Just a day prior, the NHL made history by becoming the first major sports league to sign a licensing deal with prediction markets—the upstart, wildly popular betting sites that have taken traditional sports betting by storm, while operating in something of a legal grey zone.
That same day, one of America’s most popular sports betting sites, DraftKings, acquired its own prediction market company, cannonballing into the burgeoning sector.
Now, as federal law enforcement casts a spotlight on, effectively, insider trading in sports betting, some experts are becoming increasingly concerned with the migration of sports betting to prediction markets—while others argue such betting platforms, when they make use of public blockchain networks, will provide an added layer of transparency.
Former government regulators and legal experts told Decrypt the transition to prediction markets could make the already daunting task of monitoring sports betting much harder—and lead to a proliferation of misconduct on sports-related wagers.
Prediction markets, which allow their users to purchase a financial stake in the outcome of an event through a futures contract, are overseen by the Commodity Futures Trading Commission, a federal regulator with little experience monitoring professional sports. The agency has, for most of its 50-year history, passively overseen the trading of agricultural derivative products like soybean and cattle futures.
Now, the agency is poised to regulate not just the ballooning sector of sports prediction markets, but also most of crypto, thanks largely to an aggressive push by the Donald Trump administration.
One former CFTC official, who requested anonymity to speak candidly, said the agency—which is not only tiny compared to other financial regulators, but has also incurred massive staff cuts this year—is unequipped to police either crypto or sports betting, let alone both industries.
“I think the CFTC is going to get swallowed,” the former official told Decrypt. “You’re going to see more and more of these cases of insider trading happening on prediction markets, because the CFTC isn’t doing surveillance—they don’t have the manpower to catch it on their own.”
Due to its size and historic mandate, the regulator mainly relies on whistleblowers and self-reporting by market participants to eliminate corruption on markets it oversees. It does not proactively search for insider trading, and would be unable to in sports markets without a significant increase in staff and funding, the former CFTC official said.
It appears unlikely such a change will come to the agency any time soon.
CFTC leadership has pushed this year to permanently reduce the agency’s size. Earlier this month, President Trump’s onetime nominee to run the agency, Brian Quintenz, saw his candidacy derailed this summer after running afoul of Tyler and Cameron Winklevoss—crypto executives who took great issue with, among other things, Quintenz’s plans to increase the CFTC’s budget.
The billionaire twins argued increasing the agency’s capacities would lead to “regulatory capture.”
Daniel Wallach, a legal expert on gambling and sports betting, told Decrypt the CFTC’s capacity to monitor sports markets is inadequate when compared with existing state-level sports betting regulations. State laws require stakeholders to proactively stamp out insider trading and cooperate with law enforcement and third-party integrity monitoring firms, he said.
“By contrast, under the CFTC, there are no sports-related regulations that would address this activity,” Wallach said, speaking of prediction markets. “These companies are largely left to not only self-certify their own event contracts, but also self-regulate their own integrity.”
The CFTC did not respond to Decrypt’s request for comment on this story. An automatic reply from the agency cited staffing cuts due to the ongoing government shutdown.
The business of predictions has boomed over the last year. Prediction markets allow their users to take financial positions on virtually anything—from sports and politics to crypto and cultural events. Last Monday, the sector notched a record $2 billion of weekly trading volume across the four largest prediction markets, Kalshi, Polymarket, Limitless, and Myriad. (Disclosure: Myriad is a product of Dastan, Decrypt’s parent company.)
An often cited Certuity report estimates prediction markets, as an industry, could reach a value of $95.5 billion by 2035, with a compound annual growth rate of 46.8%. Polymarket and Kalsi currently control roughly 96% market share, with the companies valued at $9 billion and $5 billion, respectively, based on recent funding rounds.
A spokesperson for Kalshi, the largest prediction market currently offering sports contracts in the United States, told Decrypt the company has internal systems in place to identify suspicious trading activity, as required by the CFTC. The company said it also has partnered with an integrity monitoring firm, IC360.
“Insider trading is a harmful activity and is explicitly banned on Kalshi,” the spokesperson added.
Wallach maintains, however, that in a political environment where the CFTC has made no apparent attempts to adapt its practices to monitor sports markets, companies like Kalshi have been effectively left to their own devices, changing the power dynamic between platforms and regulators from what currently exists in traditional sports betting.
“These are for-profit enterprises operating in a regulatory vacuum, setting their own policies without any checks or limits on their ability to deal in this area,” Wallach said.
“Match fixing and insider information have affected sporting events going back to the beginning of time,” the attorney continued, “and there are no rules in place to hold these companies accountable for it.”
Leading academics who study the field of prediction markets say these platforms not only don’t discourage insider trading, they are, in principle, designed to support it. “If the point of [prediction] markets is to get accurate information on the prices, then you definitely want to allow insiders to trade, even if that discourages other people from betting because that makes the prices more accurate,” George Mason University professor Robin Hanson, widely regarded as the nation’s foremost expert on predictions markets, told Decrypt in October of last year.
While prediction markets may pose new challenges for regulating misconduct in sports betting, some say they also present new opportunities for combating insider trading.
Though Kalshi does not use crypto in its day-to-day operations, the platform’s chief competitor, Polymarket, does—and that dependence brings with it increased transparency, proponents contend.
Marcin Kazmierczak, co-founder of RedStone, an oracle network used by prediction markets to verify information and resolve wagers, told Decrypt that because all transactions on platforms like Polymarket are publicly visible on a blockchain ledger, the set-up allows suspicious trading activity to be identified more easily.
“This transparency alone doesn’t prevent insider trading, but it enables detection at scale and speed that traditional systems cannot match,” Kazmierczak said.
Paul Grewal, Coinbase’s chief legal officer, implied Thursday that on-chain prediction markets would do more to prevent crimes like last week’s NBA gambling scandal than traditional betting platforms have.
Indeed, in recent months, observers have noted numerous instances of suspiciously timed trades on Polymarket. Notably, earlier this month, users of the site appeared to correctly pick the winner of the Nobel Peace Prize several hours before the decision was publicly announced, leading to an internal investigation of the matter by Norwegian officials.
Polymarket, however, did not announce its own investigation into the Nobel Peace Prize market following the revelation, nor did the company make any statement denouncing insider trading.
Instead, Polymarket’s X account reposted a news alert about the situation, and shortly thereafter made use of the potential scandal to market its product.
“JUST IN: It has been revealed only 5 people at the Nobel Peace Prize foundation knew the winner before they were announced,” the company boasted in post on X. “Everyone checking Polymarket knew.”
Polymarket is planning to relaunch imminently in the United States, after being pushed offshore by the CFTC in 2022 for failure to comply with agency rules. The company did not respond to multiple requests for comment from Decrypt regarding its stance on insider trading.
But if Kalshi and Polymarket diverge somewhat in their public attitudes towards insider trading, they share a similar place in America’s current political ecosystem. Both companies are advised by the president’s son, Donald Trump Jr.
